Higgs Enterprise's flexible budget cost formula for indirect materials, a variable cost, is $0.75 per unit of output. If the company's performance report for last month shows a $600 favorable spending variance for indirect materials and if 8,000 units of output were produced last month, then the actual costs incurred for indirect materials for the month must have been:
A) $6,000
B) $5,400
C) $6,600
D) $5,200

Question

Quizplus · Accepted Answer

The flexible budget for indirect materials is calculated as $0.75 per unit for 8,000 units, which equals $6,000. A favorable variance of $600 means actual costs were $600 less than budgeted, so actual costs were $6,000 - $600 = $5,400.

Higgs Enterprise's Flexible Budget Cost Formula for Indirect Materials, a Variable